2014 (6) TMI 639 - AT - Income Tax

Addition of undisclosed income Loose papers found during search Held that - AO while making the addition has placed reliance only on the seized document taking the sale difference as undisclosed income the seized document is a trading and profit and loss account drawn by the assessee in which all the income and expenses had duly been shown and a net profit has been reflected - The AO has adopted pick and choose method by taking the sales figure and ignoring the income reflected in the same paper after expenses the pick and choose method/approach is not sustainable in law and if at all the paper was to be relied for making addition in the case of assessee, the undisclosed income can be taken only to the extent as shown by the assessee in the paper out of which profit shown in the regular return of income and undisclosed income shown in the return of income for block period be reduce thus, addition to the extent of Rs. 10,10,515/- is sustainable Decided partly in favour of Assessee.

Issues:
1. Addition of undisclosed income based on seized papers.
2. Interpretation of real income concept for unaccounted sales.
3. Reliance on seized material for assessment.
4. Levy of surcharge on undisclosed income.

Analysis:
1. The first issue pertains to the addition of undisclosed income based on seized papers. The case involved a search and seizure operation where papers showing sales differences were found. The Assessing Officer (AO) made an addition of Rs. 16,07,462 as undisclosed income, which was later deleted by the Commissioner of Income Tax (CIT-A) but reinstated upon appeal. The Tribunal noted that the AO had ignored expenses while determining the undisclosed income solely based on sales figures. The Tribunal held that the pick and choose method used by the AO was unsustainable in law. Ultimately, the undisclosed income was reduced to Rs. 10,10,515, considering the expenses and profits shown in the regular return.

2. The second issue raised was the interpretation of the real income concept for unaccounted sales. The appellant argued that only actual income should have been considered, not alleged sales as unaccounted income. The Tribunal's decision focused on the proper assessment of income, emphasizing that the undisclosed income should be calculated based on actual profits after deducting expenses. This issue was intertwined with the first issue and led to the reduction of the undisclosed income amount.

3. The third issue addressed the reliance on seized material for assessment purposes. The Tribunal highlighted that the seized document containing the sales figures also reflected expenses and net profit. The AO's selective approach of considering only sales figures for addition was deemed incorrect. The Tribunal emphasized that all income and expenses shown in the seized document should be taken into account for a fair assessment. This issue reinforced the Tribunal's stance on the proper method of determining undisclosed income.

4. The final issue concerned the levy of surcharge on undisclosed income. The appellant argued against the surcharge levy, citing the timing of the search operation in relation to the relevant legal provisions. However, the Tribunal did not provide a detailed analysis of this issue in the judgment, indicating that the primary focus was on the assessment of undisclosed income based on seized papers.

In conclusion, the Tribunal partially allowed the appeal, reducing the undisclosed income addition to Rs. 10,10,515 by considering all relevant income and expenses reflected in the seized document. The judgment emphasized the importance of a comprehensive assessment based on actual profits rather than a selective approach to determining undisclosed income.

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